Foreign Audit Branches May Face Bahrainisation Quota

An urgent government-drafted bill will go before Parliament on Tuesday, changing Bahrain’s rules for external auditors by raising the bar for who can practise, giving the ministry stronger checks and penalties, and replacing the current disciplinary body with an ‘Account Auditors Accountability Council’.

The draft law, sent with Royal Decree No. 76 of 2025, amends Decree-Law No. 15 of 2021. Parliament’s Financial and Economic Affairs Committee has recommended approval in principle after meetings with the Ministry of Industry and Commerce, the Central Bank of Bahrain, the Bahrain Chamber of Commerce and Industry, and The Bahrain Accountants & Auditors Association (BAAA).

The Ministry of Industry and Commerce told the committee the rush was driven by the need to update auditing rules in line with international standards, clear up ambiguity in some provisions, and strengthen transparency, independence and accountability. It said the changes aim to improve audit work and financial reporting, while keeping responsibility for building and running internal control systems with company management.

A key change is who can register as a practising external auditor. The bill would require a valid professional accounting certification, alongside conduct and experience conditions. For non-Bahrainis, it adds further requirements, including proof that they remain eligible to practise in the country where they previously worked. It also gives the minister more say over how experience is counted, including experience gained outside Bahrain.

The committee has also backed changing Article 10 to add a Bahrainisation requirement for branches of foreign audit firms registered in Bahrain. Under the committee’s wording, those branches must employ Bahraini external auditors at a ratio no lower than the level set by the Cabinet, based on a ministerial proposal and coordination with the competent authorities.

Rules on changing auditors are also revised by drawing a clearer line between non-listed companies and listed entities. For non-listed companies, the auditor would be appointed for one financial year, renewable, while the lead auditor responsible for the work and the final report must be changed at most every five years. The Central Bank of Bahrain keeps its role in setting the rules for choosing auditors for financial institutions, and the committee has recommended that the text also cover listed companies.

The bill rewrites what auditors must report. They would have to include serious breaches found during an audit that affect a company’s activity or financial position, and tell the audit committee, where one exists under the Commercial Companies Law, or those in charge of governance, about other serious breaches that do not affect the company’s activity or financial position, based on the information available to them. Auditors must also understand the internal control systems linked to the audit and report serious weaknesses to those in charge of governance in a management letter, in line with international audit standards. A separate provision would require auditors, in practising the profession, to follow anti-money laundering and terrorist financing controls under ministry decisions, taking account of Decree-Law No. 4 of 2001 and Central Bank rules.

Conflict-of-interest rules are adjusted. Being a creditor or debtor to the audited entity would be a bar outside the normal course of business, and limits are tightened on holding roles in other audit firms. The bill also limits advisory work where it breaks international rules on non-audit services, referring to standards issued by the International Federation of Accountants.

The ministry would also gain stronger tools to check audit quality. The relevant unit would be able to carry out full checks or spot checks to assess auditors’ work, their compliance with international standards and their adherence to professional ethics. It may use outside experts, with the auditor covering reasonable costs, and auditors must allow access to offices, records and systems needed for the check. The minister would also be able to require ongoing education and training to keep skills up to date.

The proposed ‘Account Auditors Accountability Council’ would be formed by ministerial decision every three years. It would be chaired by a judge of the High Civil Court, with another judge nominated by the Supreme Judicial Council, a ministry employee and two professional specialists. The bill also replaces the term ‘Disciplinary Council’ with ‘Account Auditors Accountability Council’ throughout the 2021 decree-law.

The list of penalties is expanded. Alongside warnings, fines and bans, the bill allows orders to attend education or training for up to three years in cases linked to audit quality, conditions or limits on a licence for up to one year, temporary bans on auditing certain types of companies or institutions for up to one year, and bars on being reappointed to audit clients, wholly or partly, for up to three years. The maximum fine remains 100,000 dinars, and the law keeps the option of cancelling the licence and striking an auditor from the register. It also allows recovery of investigation costs from the violator, or from the complainant if malicious allegations are proven.

Another change would require auditors who audit listed joint-stock companies, public bodies and institutions, and financial institutions to publish a transparency report, with its content and publication dates to be set by ministerial decision. The bill also allows the ministry to hand some tasks under the law to non-government bodies.The Bahrain Chamber of Commerce and Industry supported the main changes but urged transitional provisions, including a grace period and steps to help those covered by the law adjust once it takes effect. It also called for a clear approach to monitoring audit service prices, arguing that rising compliance demands on private firms require a framework that protects both those covered by the law and the users of audit services.

The Bahrain Accountants & Auditors Association (BAAA) backed passing the bill on an urgent basis, saying the current system has caused practical problems for the profession, including client-rotation rules that force firms to rebuild client bases. It said the revised accountability council, with two added professional specialists, and other changes address problems that have emerged since the 2021 decree-law came into force.

The Central Bank of Bahrain told the committee the proposed rules would apply to all accountants and external auditors at audit firms and offices, and that they remain subject to the bank’s rules. It said one driver was fairness, especially for smaller audit firms, and pointed to existing requirements covering audits of listed public joint-stock companies.